Psychiatric injury during disciplinary process

Recently, the High Court handed down their decision in the case of Elisha v Vision Australia Limited [2024] HCA 50, that the unfairly dismissed employee can make a claim for damages due to psychiatric injury due to the employer’s breach of contract.

The contract of employment between Elisha and Vision Australia incorporated the policies and procedures of Vision Australia, which included their Disciplinary Procedure. The conduct of Vision Australia’s management in the process of dismissing Elisha was accepted as unfair when the parties agreed to a settlement of $27,248.68. The proceedings now ruled on by the High Court were commenced in 2020, on the basis that Vision Australia breached their contract with Elisha resulting in psychiatric injury.

The basis for this claim was that the Disciplinary Procedure of Vision Australia was a term of the employment contract, and in the manner that Elisha was dismissed, the company breached their policy. The policy included detailed steps which Vision Australia was to follow, many of which were not followed in Elisha’s dismissal, resulting in a breach of contract. 

The Court considered the long-standing legal principle adopted in previous decisions that prevent recovery of damages for breach of contract where those damages seek to compensate the claimant for mental distress. However, the Court declined to apply this principle to prevent the claimant from recovering damages for psychiatric injury flowing from the breach of the term in his employment contract concerning the way the contract was terminated.

The Court held that in circumstances of a serious breach, such as in this case, there is a serious possibility of causing the development of a psychiatric illness. Such possibility should have reasonably been contemplated by the parties at the time they entered the contract and, as such, there is an entitlement to damages. The damages awarded exceeded $1.4m. 

The takeaway from this is a caution to employers regarding Disciplinary Procedures which are incorporated in employment contracts by reference. If an employer has such a policy, they should ensure it is followed or will risk a similar claim being made. 

It is not required for employers to have a detailed Disciplinary Procedure document, and indeed, following this decision it may be advisable to have a summary only policy if an employer intends to have such a policy at all.

Disclaimer: This summary is a guide only and is not legal advice. For more information, call ECA Legal on 08 6241 6129 or email ecalegalwa@ecawa.org.au